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HP Is Falling Apart

One leader does not make or break a company. How about death by a thousand paper cuts?

When Mark Hurd left the CEO chair of Hewlett-Packard(NYSE: HPQ) (or was forced out of it, depending on your sources), it was easy to panic. Hurd is, after all, widely credited with bringing fiscal responsibility and a new lease on life to the previously floundering tech giant.

You can go on and panic, but not over losing Hurd. The problems with HP run much deeper than that. The whole mess isn't Hurd's fault -- but a lot of it is.

What else is wrong?To me, Mark Hurd's alleged improprieties just form the slashing tip of a massive iceberg. If anything, this scandal forced a few of the company's other shortcomings back into the light.

The company is under investigation by government arms here and in Germany over alleged attempts to land contracts in Russia by bribing the right people. The amounts on the table are small by HP standards, but this shouldn't even have been an issue to begin with. Intel(Nasdaq: INTC) may bend the limits of ethical business from time to time, but this is a clean break.

While HP now has plenty of money in the bank, the company is bankrupt in the innovation department. The annual R&D budget has declined under Hurd and his predecessor Carly Fiorina: When Fiorina took the helm, HP spent 5.8% of its annual revenue on research and development, which is the lifeblood of any self-respecting technology business. Hurd took over at a 4% R&D ratio, but at least Fiorina increased the dollar amounts spent on R&D. Now it's a paltry 2.3% -- and a lower total budget. HP is doing the lobster walk.

Who's really at fault?The list goes on, but those are the top complaints. In the end, it all comes back to a decade of lacking leadership. Hurd is gone, but the damage is already done, and I blame the board of directors. Actually, scratch that -- I blame Mark Hurd for the spineless board of directors he created.

Most of HP's board members joined the steering committee under Hurd, who served as chairman of the board in addition to his CEO duties. You have to assume that the chairman has a significant say in who does and doesn't get one of those cherished board seats.

The entire board now consists of members appointed under either Hurd or Fiorina, two leaders whose sense of grand strategy leaves a lot to be desired. The fact that Hurd's supposed buddies then turned on him unanimously says something about his ability to pick friends, as well. Oh, and then they turned around and gave the supposed miscreant a generous parting gift. I don't think we're talking about a great judge of character here.

In other words, the board is a legacy of two failed empires -- the first in a business sense and the second in moral code. What are the chances that their appointee for the vacant CEO and chairman positions will be ready and able to fix the many cracks that have formed in HP's armor over the last decade? Not good. If I were a shareholder, I'd be calling for a brand-new board. And then the new crew gets to pick a new CEO.

Who can fix it?So whoever gets the thankless job of running Hewlett-Packard next is facing a monumental task:

Repair the damage inflicted on HP's culture by two failed leaders.

Inject a strategic vision into a lifeless hulk of too many moving parts.

Inspire top talent to flock to HP again after many years of the opposite effect.

Do all of this under a low enough budget to keep shareholders from running elsewhere and messing the whole plan up.

This sinking ship may be beyond repair. It would take a leader with truly epic credentials to get HP out of this mess, like John Chambers of Cisco Systems(Nasdaq: CSCO), Sam Palmisano from IBM(NYSE: IBM), or maybe Oracle(Nasdaq: ORCL) CEO Larry Ellison. But all of these people already have great jobs with companies they love, and they won't come to HP's rescue.

The best HP can hope for is some relatively unknown lower-level executive with grand career ambitions or another technology leader's unwanted leftovers. If Steve Jobs isn't going anywhere, perhaps Tim Cook would leave Apple(Nasdaq: AAPL) for a bigger job at a paradoxically smaller company. Or perhaps a merger with EMC(NYSE: EMC) would let HP raid the storage expert's rich locker of quality leadership.